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Anyone find any edge with activity based charts over time based charts?

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charlotte nc
Trading Experience: Master
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I don't use charts myself.... but volume charts can give you an insight into what moves the market and also how much of the volume that you see resting on DOM is speculate vs. real.

If you look at the level 2 book and you see it mostly stacked with 500 per price level, then see what a 250 volume bar would plot. Typically the transaction level holds < volume than the resting levels. If every 250 volume bar is moving 1 or more price levels when you plot it, then you can assume half of the volume on the DOM is speculative. Don't think of this as fake necessarily, but people are trying to optimize their queue positions so they cancel and resubmit.

A few insights you might pick up from this:

1. If the transacted volume is roughly 1 to 1 with the resting volume in the DOM then you are usually in a very high volatility period and this tends to indicate trending systems will perform well. In higher volatility periods, a lot of MM algo's shut down, and leave mostly stoic algos that don't cancel and resubmit as much. Also it is trickier to land cancels at the transaction level when the entire price level clears in a blip.

2. If the transacted volume is 1.5x or 1x to 2x the resting volumes in the DOM then this is probably a normal level.

3. if you see something like 1x to 4x or 1x to 8x then you are in a low volatility / ranging market. Everyone is jockeying for position in the queue and no one wants to cross the spread or get a bad fill.

3. If your tick chart is plotting roughly the same visually as your volume chart with the same # settings. Let's say 100 vs. 100, then this implies that the market is made up of smaller traders more or less. But if you see that that the volume chart at 100 = the tick chart at 1000 for example, then there are larger players in the market and the average trade size is 10. Typically the competition of this is comprised of a few large trades, let's say 100, 50, 25, and then a whole lot of 1,2,3,2,1,2,3, type of trades. But it averages out. Some people like to ride the coat tails of the big players. I won't speak to the success of this logic, but if you are looking for this type of information you can easily get it with a few steps and a little logic.

The new volumetric charts from NT 8 show more detail and break up the bid vs. ask volume. This can sometimes be useful to see if a single bar of 1000 was made up of mostly bids or asks. But there is not always a clear heuristic that can be derived from this. Often times the bid volume > the aks volume but the ask side is what breaks and the price level moves up. This has to do with how the limit order book is stacked and cancelled in relation to the market order queue. So even though it may seem like a clear way to rationalize the market, there is not always a 1 to 1 heuristic.

There is nothing like this, but in terms of charts, or information in general, what would be ideal to see would be on a per price level basis:

Starting volume
Added volume
Canceled volume
Transacted Volume

If you could see this for both the bid and ask on every price level, then you could truly rationalize the behavior of the markets. But without all of these elements there is too much guess work to infer what the root cause of a price level change was. I do a lot of data analysis with these data elements, but building this type of data set is not easy. If anyone could put these elements into a trading platform they would really have something useful IMO.

Happy Trading!


LaissezFaire View Post
Nice insight! Thanks a lot, Ian!

Since you mentioned tick charts specifically. Do you have an opinion on volume charts also?

I know many people love volume charts, but to me, I feel that tick charts make more sense.

Curiously, I find that they usually don't look that different anyway. Usually, both tick/volume/minute look fairly similar on any given day. Unless you use really fine settings.

In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.

Last edited by iantg; May 3rd, 2018 at 03:55 PM.
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